Pessimism abounds: top bank

OTTAWA — Canadian businesses are becoming more pessimistic about the economy and their future prospects for sales both at home and in foreign markets, the Bank of Canada said Monday

OTTAWA — Canadian businesses are becoming more pessimistic about the economy and their future prospects for sales both at home and in foreign markets, the Bank of Canada said Monday.

The central bank’s survey of senior management at 100 representative firms shows confidence is well off post-recession highs across the broad spectrum of issues — from sales expectations to investment and hiring intentions, to their ability to pass through their costs to customers.

But executives are most gloomy about sales. For the first time in almost three years, more firms on balance expected sales growth to slow rather than increase over the next 12 months.

It is difficult to say whether business executives are the most pessimistic since the recession because the question posed is relative to the past year, but the central bank notes the result suggests firms are more worried about selling their products into the softening demand globally and domestically.

In the survey, which was conducted between mid-November and mid-December, 41 per cent said they expected their sales pace to slow, as opposed to 37 per cent that expect an increase. The rest were neutral.

“Overall, the weak U.S. economic outlook, concerns about adverse effects from the situation in Europe and an expected slowing in household spending were among the factors dampening sales prospects,” the bank report states.

“Of those firms anticipating higher sales growth over the next 12 months, many cite plans for new product development or diversification into new domestic or external markets.”

Even respondents in the resource-rich West expect sales growth to slow, albeit coming off a strong performance in 2011, the bank says.

The one surprise — and it’s a welcome one for workers — is that slightly more firms say they plan to add employees in the next 12 months than was the case three months ago, although the balance of opinion remains below the post-slump high.

Analysts said the survey’s results aren’t surprising given concerns about the economy, particularly the near-term impact of the debt crisis in Europe.

Canada’s gross domestic product growth has slowed from 3.5 per cent in the third quarter to what is expected to be about 1.5 per cent this year.

“The survey is very much consistent with what we’ve been saying about prospects for the economy in 2012, particularly in the first half, where we expect a global growth slowdown to weight on demand for Canadian businesses,” said TD Bank economist Leslie Preston.

On other measures, the survey found little change in what had been a slowing expectation for investing on machinery and equipment, something the bank has been urging business to step up to improve woeful productivity.

Firms did say that conditions for obtaining credit had tightened over the past three months, although a separate survey of loan officers suggested “almost no change in overall business-lending conditions.”

What firms said about hiring constituted the biggest surprise, particularly as it ran contrary to the overall negative theme of the survey and since employment levels in Canada has been flat now six months.

The balance of opinion of 45 per cent of firms said they expected to take on more workers in the next 12 months, slightly more than the result three months ago.

Preston noted that the bank said the positive intentions on hiring was more widespread in the resource-rich Prairie provinces. Nor does the survey assess the extent of hiring that firms are contemplating.

The business confidence outlook is conducted quarterly and is sometimes cited by the Bank of Canada in its assessment of the economy and in setting interest rate policy. The central bank is scheduled to release a new forecast next Wednesday, a day after its interest rate announcement.

Although the survey shows lower business confidence, it is unlikely the findings are negative enough to compel governor Mark Carney to abandon his current wait-and-see stance on interest rates, which haven’t changed in 16 months.

“This survey is consistent … with the Bank of Canada staying on hold into 2013,” said Benjamin Reitzes of BMO Capital Markets.

In past policy announcement, Carney has stressed that he views the current one-per-cent overnight rate to already be stimulative.

The balance of opinion on output price increases was modestly negative, but similar to three months ago.

“Firms generally cite weaker demand conditions or competitive pressures as the main factors restraining increases in output prices,” the bank said, noting that the view was most widespread among firms in the service sector.